New CBA Prospect Rules Part 1: Why It's The Worst Possible System, and Why It Happened

By now, you’re probably a little bit familiar with the new CBA deal. Outside of the new rules for international signings and the draft, it’s a pretty good document. Some long-needed things like a defense for gay and lesbian players, HGH testing, 26-man Doubleheader rosters, luxury tax tweaks and changes to the free agent compensation system. That’s all great. I’d be very happy if that’s all they did. But the MLB and MLBPA decided to go ahead and do a horrible thing for baseball instead. They neutered the MLB player development process.

Here’s what they did:

De-Facto Hard Slotting. Each team will be assigned a draft budget, and will be penalized with a loss of future 1st round draft picks if they go above that threshold, with a small grace area. This is essentially hard-slotting. Now, the good news here is that the allocated budgets are fairly high. The Yankees won’t be able to buy as many players as they are used to, but they won’t be completely impotent at the draft either. Still, teams are going to face a decision between paying top prospects (who have just as much leverage as ever) and signing a large number of prospects. Remember that teams absolutely, 100% need to sign 20-30 prospects every year just to populate 6 levels of minor league ball.

This system makes no sense at all. MLB has now two things going on: A draft where teams get monopoly rights to bid on players, and a hard-capped budget for teams to sign the players they draft. This is the stupidest possible way to do things. Players in the draft have tons of leverage: teams want to sign and develop them, they almost always have at least some kind of college fall-back, and even a compensation pick in the subsequent draft comes with a one-year time delay to an already 2-4 year time horizon. And you know what? Now they have even more leverage! No team is going to be able to start signing any draft picks with significant signing bonuses whatsoever until they deal with their first and second round picks. Now, I don’t know if teams are forced to pay a certain amount per slot, or if the “new slotting” is just their overall draft budget. If its the former, expect absolute bedlam while teams negotiate with two players, while leaving a dozen to sit waiting in July.

What would make sense? Don’t do both a compulsory budget and a draft. Give teams a budget based on standings, compensation, etc, and put everyone on the market. For a 1-month period, anyone who is eligible to be signed can be signed by any team. It would also be bedlam, but would allow clubs to make better strategic decisions when allocating resources. It’s a giant fantasy auction.

The Destruction of the Latin American International Free Agent Regime. MLB teams will still be able to go out and sign players on the open market, but they will also be subject to a hard cap. The cap will also vary depending on a team’s place in the standings, but will be absurdly low. For now, teams will all have $2.9 million to spend, but eventually that number will range between $1.8 and $5.5 million. Let me repeat, the Yankees will have an absurdly low budget when they are on the low end of that range, which should be almost every season.

Essentially, this will kill the IFA market as we know it. Teams will no longer sign massive amounts of Latin American players. A few top players will gravitate toward the teams with big budgets. This won’t be the Yankees. They’ll be stuck with almost no budget to compete. They would be unwise to invest significant amounts of resources in Latin America. Ever again. Much of the growth of baseball talent, training, and popularity abroad will evaporate very quickly.

So, why the hell did this happen?

Make no mistake, the biggest losers in this deal were fans. The second biggest losers were future players. Current MLB players and the owners (the two parties in the negotiating room) carved themselves out a sweet deal at the expense of the other groups.

Owners get to control their costs in the amateur draft and international free agent market. They get to exploit their near monopoly power over ‘the game of professional baseball’ against a semi-fixed amount of supply, especially on the international market. Teams were spending more and more money on amateur signings because it was a good investment for them. Now, that acceleration is quashed, and for many teams will be reversed.

In return for this, the players got a few other things. They got rid of most compensation picks, which should raise free agency prices a little bit, especially for relief pitchers. They got another significant raise to the minimum salary, and more frequent Super-2 arbitration. Theoretically, they should also get more money from free agency, as teams shift their excess draft money to other types of player spending.

Future players, especially a few years down the line, got significantly smaller signing bonuses. This is a hit to the bottom line of the top-15 draft prospects and top international free agents, but they’ll be fine. They won’t leave the sport or struggle any more financially than they would have before. Players on the bottom end (getting little to no signing bonus) aren’t effected much at all either. The players who will really be hurt are the guys who sign in that $200k – $500k range. Most won’t make the major leagues, and now their bonuses will be significantly smaller. Minor league salaries really need to be raised now.

And how about the fans? Well, we lose in a lot of ways. The biggest is that the new rules will drive talented players away from the game of baseball. A lot of young athletes have to choose a sport when they are 17 or 18 years old. Baseball already offers a much tougher path to the bigs than other sports, and now it will offer less money. Players will leave and not only go play basketball, hockey and football, but also choose to go into more normal career paths. On top of that, fans will be stuck with an inefficient system that discourages teams who want to turn their clubs around from investing in their product. They will be largely at the whim of luck and the free agent market.

So, congratulations Major League Baseball. You’re a business, and you probably made money today. And congratulations MLBPA, because you managed to get concessions from the owners while only screwing over the people who aren’t yet millionaires. Just don’t pretend you did this for the fans.

I have a much different take, which will be posted at 5:30PM, but would point out two things in the meantime:

1) There will not be hard slotting. Teams are going to be allocated a budget from which to pay all their draft picks in the first 10 rounds. Depending on the assigned values to each pick, which will be added up to the form the budget, there could be very little impact on the Rule IV draft. Potentially, the only thing that would be significantly impacted is the amount of bonuses paid to the top picks, which would be a benefit to the small market teams picking atop the draft.

2) I am not a fan of the IFA rules, but again, the devil is in the details. If teams are able to trade their IFA dollars, which the CBA seems to suggest, that could mitigate some of the concerns you expressed. Also, caps on IFA expenditures do not have to mean a shrunken talent pool (although that is a possibility).

Looking forward to it. Unfortunately, I’ll be traveling come that time, so my comments will be delayed.

November 23, 2011

DirtyWater

Oh yeah its so unfair. Open up the drafting to a free agency bonanza and let the Yankees outspend everyone for IFAs.

Yanks already outspend the league at about 2 to 1 and can’t get thru the first playoff round. Something should be done. Let the Yankees spend more.

November 23, 2011

T.O. Chris

You do realize the draft rules hurt teams like the Pirates much more than it does the Yankees in terms of getting talent and competing right?

November 23, 2011

DirtyWater

No it doesn’t. Teams like the Pirates can’t overpay draft picks not to stay in school or play other sports as is now. Locking teams into draft slots and penalizing them if they overspend (including removing draft spots)takes away the financial advantage NYY enjoy. As well as slaming the door on their Dominican factory where theyve bolstered the farm by checkbook unchecked.

The playing field just got more level and the Yankees will have to learn the value of draft picks.

November 24, 2011

T.O. Chris

Yeah giving 8 million to Cole and being one of the highest spending teams in the draft last year would never happen under the old system…. oh wait, nevermind.

The Rays have been so competitive over the last few years because of the draft. All this system will do is cost small market teams to spend on top draftees but not be able to spend on overall draft classes. A team like the Nationals is much less likely to be able to draft and sign both Strasburg and Storen in the same year now. The Yankees will be fine either way, they have multiple outlets to find top talent. Smaller market teams need the draft to stay competitive. Most GMs think this way will lead to less balance than we have now, and a much bigger mess in the next CBA. Though you do probably know the outcome better than they do.

November 25, 2011

DirtyWater

Thanks for the smug attitude and your concern for the Nationals. But youre ignoring quite a bit. So Cole can get $8m what exactly did they spend on the rest of their draft class? Did they water it all down for one player? BUZZZZ wrong answer but thanks for playing.

Major league contracts for draft picks is off the board so no $8m for a Cole and it might save the Yankees another Brackman Bust-a-palooza as well.

Capping the slots for the draft allow the small market teams to draft the players they want not the ones who won’t sign for less money and wait out a huge bonus like they have in the past.

Yankees will spend over their slot and be penalized because they can’t spend up on the next gratest thing each year coming out of the DR. I think most GMs recognize this as does the architects of the CBA when they allowed the IFA money to be traded.